Everyone is now familiar†with the term†'outsourcing' as banks,†insurance companies and†others continue to remove†their day to day service†functions abroad.†Outsourcing has been a†feature of the reinsurance†market for many years;†every run-off, whether of a†company, syndicate or†book of business, involves†outsourcing in one shape†or form.
An outsourcing agreement involves the†removal of an in-house function to a third†party supplier. Outsourcing transactions bear†common features which specialist lawyers in†the field recognise. We set out below a†checklist of these features and guidance on†how to address them.
An organisation looking to outsource must†think about not just what it is transferring in†the short term but also what sort of service it†wishes to receive and how best to manage the†supplier during the course of the agreement.†This involves a range of issues, including:
How best to maintain flexibility to cater for†changes in the business requirements.
How to maintain a tight control on costs.
How will levels of service performance be†monitored?
How will the supplier deal with failures to†meet levels of performance?
How will employees be treated?
How will trade secrets be safeguarded?
How will the business extricate itself if it†all goes wrong?
Outsourcing therefore involves complex long†term commercial contracts into which†adequate safeguards must be built to protect†the customer against the risks associated with†transferring functions to a third party.
However, you should expect more of your†lawyers than simple contract drafting.
Appreciation of the internal pressures that†outsourcing transactions generate is essential.†Many arrangements are business critical,†involving the future of existing employees†and therefore need internal buy-in. Project†teams need to be established and advised on†project management - including a full†explanation of a typical outsourcing process.
Advising on and drafting tender†documentation is also a critical part of any†outsourcing process. It is important to establish†a means of extracting and analysing the†necessary internal information: for instance,
A definition of the current workload that†the function in question undertakes.
Details of HR costs for affected employees.
Details of third party contracts that will†transfer to the new supplier.